advocacy

The past month has seen a media focus on the Australian Securities and Investments Commission’s (ASIC) use of organisational psychologists in the boardroom. As part of its Corporate Governance Taskforce — examining themes of risk oversight and executive remuneration with a selection of large, listed entities — ASIC has invited target boards to participate in interviews and surveys with an organisational psychologist. The psychologist is also reported to have attended some board and committee meetings to review engagement between board and management.

This has raised a range of concerns — from commentators, opinion writers and lawyers, to directors in the frontline of this new ASIC approach.

While novel in the Australian regulatory environment, regulator use of organisational psychologists in the boardroom is not a new development. The Dutch prudential regulator De Nederlandsche Bank (DNB) has had a dedicated team of organisational psychologists as part of its supervision of financial services entity behavior and culture since 2010. DNB has even written a book about its approach — Supervision of Behaviour and Culture (2015) — available here.

In the UK, the Financial Conduct Authority (FCA) is drawing extensively on lessons from organisational psychology — although not quite to the point of putting psychologists into board meetings. The FCA is investing heavily in upskilling financial services entities on culture, expanding its research team and partnerships with academics in psychology and behavioural studies. See the FCA’s page on psychological safety as an example.

On a different scale, the Australian Prudential Regulation Authority (APRA) has also drawn on organisational psychologists in its assessment of corporate culture, notably in the landmark prudential inquiry into governance, culture and accountability at the CBA (2018). Late last year, however, APRA noted it was re-scoping its ambitions on intensive culture reviews — after pilot studies that it said produced informative insights, but was very resource-intensive — for more scalable models delivering greater regulatory “bang for buck”. ASIC itself has also drawn on psychology and behavioural economics in its consumer protection regulatory work for some time, although in a different context to the current debate.

Directors and companies must have more certainty on the ground rules.

And, of course, companies and organisations often use organisational psychologists, and created the genre — even the AICD in its new Boardroom Mastery program is using an organisational psychologist to help very experienced directors improve their skills.

However, the questions being raised about ASIC’s use of organisational psychologists are important.

First, ASIC is not a prudential regulator — it is a conduct regulator that has adopted a new “why not litigate?” stance on enforcement. According to briefings to government obtained by journalists under Freedom of Information (FOI) laws in June, ASIC has more than 66 enforcement actions flowing from the banking Royal Commission alone with 35 individuals in the spotlight — which includes some directors. This is a fundamentally different context to a cooperative, shared-learning model on culture.

Secondly, inserting a psychologist into one-off and limited board meetings as a regulatory measure has obvious limitations: among them the Hawthorne effect (tendency of some people to work harder and perform better when they are participants in an experimental study), lack of context on content and dynamics, and lack of expertise on complex items that may have evolved in discussion over time. DNB tackles some of these issues with a longer-term process of building trust — something ASIC’s current intervention does not have the capacity to deliver by its nature. While the psychologist’s views might be interesting and help guide ASIC’s approach, they could not (of themselves) be a basis for regulatory conclusions

Thirdly, there’s the risk that limited observations from the psychologist might become discoverable in future enforcement actions or litigation (by ASIC or others). ASIC has a broad brief as a regulator, and the confidentiality of information provided to ASIC is not protected by legislation in the same way as it is for APRA. ASIC has said that while its work on the Corporate Governance Taskforce is not enforcement-focused, if it uncovers issues it will refer them to its enforcement team for action. There are important questions about the confidentiality of records, notes and reports if organisational psychologists are sitting in board meetings that need more consideration — and, the AICD argues, legislative protection.

Finally, context is important. ASIC’s use of an organisational psychologist in its current review is limited, and ASIC is not “embedding” them in boardrooms. ASIC’s use of its psychologist is a small but important part of a much broader review — one that has involved hundreds of interviews by ASIC staff and a review of tens of thousands of pages of documents by the regulator.

The insights that ASIC is looking for could make it a better regulator, but directors and companies must have more certainty on the ground rules.

Queen’s birthday honours

The Australian Institute of Company Directors would like to congratulate members recognised in the Queen’s Birthday Honours on 8 June 2019.

Australian Capital Territory

  • OAM Wing Commander Jeffrey Howard GAICD
  • AM Daryl Ann Karp FAICD
  • AM Commodore Darron Kavanagh CSC RAN GAICD
  • AM Colonel Michael Kennedy GAICD
  • AM Louise Mayo MAICD
  • AM Distinguished Professor Dharmendra Prakash Sharma GAICD
  • AM Theanne Walters MAICD
  • AM Warrant Officer Gary Wight MAICD

New South Wales

  • OAM Paul Allison FAICD
  • AM David Anderson GAICD
  • OAM Leanne Barnes GAICD
  • AC Ita Buttrose AO OBE MAICD
  • AM Lindsay Cane GAICD
  • AM Professor Alan Cooper OAM FAICD
  • AM Group Captain Patrick Cooper CSC GAICD
  • AM Peter Corcoran OAM FAICD
  • AM John Croll MAICD
  • AM Elizabeth Crouch FAICD
  • OAM Alexander Gelman GAICD
  • AM Christine Hawkins FAICD
  • AM Dr Michael Hollands MAICD
  • AM Margaret Jack MAICD
  • OAM Martin Klumpp MAICD
  • AO Simon Lewis PSM MAICD
  • AM Dr Douglas Lingard MAICD
  • OAM Ian Miller GAICD
  • AO Dr Geoffrey Raby MAICD
  • AM Geoffrey Roberts FAICD
  • AM Anthony Schembri MAICD
  • AO Professor Michelle Simmons MAICD
  • AM Dr Keith Suter FAICD
  • OAM Hunter White MAICD

Northern Territory

  • OAM Suzan Cox QC MAICD

Queensland

  • OAM Honourable Archibald Bevis MAICD
  • AM Professor Victor Callan FAICDv
  • AM Stephen Conry FAICD
  • AM Katherine Hirschfeld FAICD
  • AM Bruce McIver FAICD
  • AM Group Captain Scott Parry MAICD
  • OAM John Perry MAICD
  • AM Dr Emmanuel Pohl FAICD
  • AM Catherine Reid GAICD
  • AO Professor Linda Richards MAICD
  • AM Professor Arun Sharma GAICD
  • AM Anthony Shaw FAICD
  • OAM Catharina Slot MAICD
  • OAM Colin Sutcliffe MAICD
  • AM Janine Walker MAICD

South Australia

  • AM Marcus La Vincente FAICD
  • OAM Stephen Larkins FAICD
  • OAM Dr David Martin FAICD
  • AM Bruce Spangler FAICD
  • OAM Austin Taylor FAICD
  • AM Professor Brenda Wilson FAICD

Tasmania

  • OAM Ross Doddridge GAICD
  • AO Dale Elphinstone FAICD

Victoria

  • AO Elizabeth Alexander AM FAICDLife
  • AO Rosemary Batty MAICD
  • AM Associate Professor John Boucher GAICD
  • OAM Anna Brown MAICD
  • AM David Buttner MAICD
  • AM Krystyna Campbell-Pretty FAICD
  • AM Alisa Camplin-Warner OAM GAICD
  • AM Associate Professor Stella Clark GAICD
  • OAM Carolyn Clark MAICD
  • AM Robert Dalziel FAICD
  • AO Professor Calum Drummond FAICD
  • AM John Etherington FAICD
  • AO Kathryn Fagg GAICD
  • OAM Alain Grossbard MAICD
  • OAM Stephen Higgs GAICD
  • OAM Paul Jevtovic APM MAICD
  • AM Dr Jeremy Johnson MAICD
  • AM Charles Kiefel OAM FAICD
  • AO Professor Christine Kilpatrick FAICD
  • OAM Patti Manolis GAICD
  • OAM Amanda Martin MAICD
  • AM Susan Oliver FAICD
  • AO Peggy O’Neal FAICD
  • OAM Gregory O’Neill FAICD
  • AM Susan Peden GAICD
  • AM Dr Joseph Reich MAICD
  • AM Colonel Paul Rosenberger GAICD
  • AO Carol Schwartz AM FAICD
  • OAM Kelvin Spiller FAICD
  • AM Dr David Thurin MAICD
  • AM Dr Mark Toner FAICD
  • AM Melvyn Tozer MAICD

Western Australia

  • AM Ronald Adams FAICD
  • OAM Carol Adams GAICD
  • AM Professor Ross Dowling OAM GAICD
  • OAM Kim Eckert GAICD
  • AM Ricky Grace MAICD
  • OAM Dr Wayne Gregson APM FAICD
  • AO Susan Murphy GAICD
  • AM Dr Lindy Roberts FAICD
  • AO Diane Smith-Gander FAICD
  • AM Gregory Wall FAICD
  • AM Graeme Wallis MAICD